Transparency — defined as the degree to which it is possible to observe who does what and when — is believed to play a key role for cooperation within teams, coalitions, and organizations [1]}, [2]}, [3]}, [4]}, [5]}, [6]}.The management literature uses transparency as an umbrella term for all forms of information acquisition and production that occur in an organization and aim at making information available to others without hierarchical structures determining the direction of the information flow. This differs from other commonly studied forms of transparency such as surveillance (i.e. supervision by managers in a hierarchical relationship) and disclosure (i.e. the active sharing of previously secret information by managers); for further reflections on this terminology see [7]}. One natural mode of transparency production is monitoring. Experimental and field evidence is consistent with the tenet that monitoring through an external agent supports cooperation or abstention from opportunism, and in turn team output [8]}, [9]}, [10]}, [11]}, [12]}.Note, however, that monitoring can also have adverse effects [13]}, [14]}. We extend on this negative role of monitoring below. Yet, monitoring within teams routinely comes in the endogenous form of peer monitoring [5]}, [16]}, [17]}, [18]}, [19]}. That is, team members decide how much monitoring to apply to whom and when. Endogenous monitoring gives rise to another layer of transparency in which monitoring decisions itself may be transparent—a setting that we call transparent transparency—or not. In this paper, we report the results of a novel behavioral lab experiment exploring whether two-person teams interacting repeatedly in a sequential Prisoner's Dilemma can obtain more efficient outcomes under transparent transparency versus the alternative mode of hidden monitoring.
